Why I'm Nervous About Housing

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Big week for housing, and I'm a little nervous. The NAHB Housing Market Index was disappointing Monday morning: lots of talk about NAHB Chief Economist David Crowe, who said, "Interest expressed by buyers in the past few months has yet to translate into expected sales activity."

Yikes! We had early good news from Lennar about increased sales, and spring traffic has been terrific. But there are expectations of 20 to 30 percent growth in orders for the spring compared to the same period last year; the stock prices are reflecting that hope.

How so?

Current price to book multiples (north of 1.5) are at a premium to their 10-year averages. That's telling you the stocks are richly priced. Deliver, or sell off.

Housing starts have been stuck around 700,000 seasonally adjusted annual rate for 4 months; we are expecting the same for March. This is about half the 10-year average of roughly 1.5 million homes. We need this to move up more. Much more. But it's not moving, and no one is expecting huge moves.

The other problem: much of the gains have been driven by multifamily. That still counts, but you get a bigger effect economically from single family.

One important point: move up builders like Toll and Standard Pacific have been doing better than first-time builders because of the perception that move-up buyers will have an easier time getting mortgages.

Here are the average selling prices for the big builders:

Home Builders
(average selling price, thousands)

Toll $586

Standard Pacific $374

PulteGroup $270

Ryland $251

Lennar $248

KB Home $219

DR Horton $214

Source: Susquehanna

Standard Pacificoutperforms on IPO hopes. Curiously, SPF, a move-up builder with heavy business in California, has been outperforming other builders recently.

Here's what Susquehanna had to say: "SPF is primarily a West Coast builder with an average selling price in CA of ~$519k.. Investors may be favoring the name in anticipation that the recent pop in West Coast tech IPO's, such as Facebook (FB), ZNGA, Z, LNKD, JIVE etc.., will spur home buying / spending, particularly from the move-up / luxury buyer. The move-up / luxury buyer equates to 73% of SPF's deliveries..."

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